Biodiesel Startup Company in Brazil - Assignment Example

? CRITIQUING BUSINESS PLAN IN EMERGING MARKET CRITIQUING BUSINESS PLAN IN EMERGING MARKET OverviewIt is an open secret that the role that entrepreneurs play in emerging markets goes a long way to serve as the backbone of growth and development for these emerging markets (Ivanova, 2009). However, there exists an ironic situation in most of these emerging markets, of which Brazil is part that when entrepreneurs seek to invest in the emerging market, they are faced with so many challenges, impediments and barriers that they have to battle and overcome by themselves (Foley, 2003). There are cases and instances that governments try to come to the aid of some of these entrepreneurs by use of favorable macro and micro economic policies. This notwithstanding, not all of these policies have eliminated the barriers. Interesting, studies have even confirmed that most economic policies put in place by the Brazilian central government also turn round to be barriers for most entrepreneurs seeking to start up new businesses especially those in the oil and gas sector, of which the biodiesel industry is part (Gartner, 1985). In this critique paper for a business plan that is ready for implementation of a biodiesel startup company in Brazil, the various barriers that may possibly exist and methods that can be used to mitigate each of these barriers are outlined. Licensing The licensing of company system that exists in Brazil could serve as a major barrier to both the entry and growth of the new biodiesel company intended for Brazil. This is because there are licensing regulations, which have been criticized by most economists and market players as being investor hostile. Unfortunately, such hostility exists in cases that the government feels that the coming of certain companies may be a major competition for existing and known state corporations (Ivanova, 2009). A typical example of this is in the area of energy, where even though there is an open market, the state still practices a casual monopoly, trying to prevent private participation. As part of the casual monopoly strategy, private individuals are made to undergo several routine processes in getting license to operate (Krasniqi, 2007). Meanwhile, the possession of a license to make the commencement of business in Brazil is very important as it opens the avenue for such companies to benefit and enjoy trade incentives that may exist. What is more, in order to have an international reputation and open one’s business up for international investment and other forms of business expansion options such as enlistment on the Brazilian Stock Exchange, license registration is demanded. A method to overcome this barrier would be to first enter the market as a partner to an existing registered local company. This way, the company will not be given the kind of hostile treatment given to expatriate companies. After some time when there is a separation in the ownership of the company, the license of the original company will over both separated companies if there was ownership up to a certain number of years. Lending and Credit bias in favor of multinationals Access to money for entrepreneurs remains a major barrier to growth for most new entrants in Brazil. This is because there is a form of lending and credit bias that favors existing and well established international and multinational companies as against new entrants and small and medium scale businesses in Brazil (Foley, 2003). Commonly, the financial institutions, most of which are banks try to justify some of these biases by explaining that new entrants and small and medium scale companies lack credit credibility. What this means is that they are not tried and tested in their finances such that they can be trusted with huge sums of credit. In most cases therefore, there is a limitation on the amount of money that can borrowed by these new entrants. Where there are no limitations on the quantum of money that can be borrowed, there are strict lending processes that delay the availability of money. There is also a credit bias towards traditional or what is known in Brazil as indigenous sector companies. These are the companies that go into agriculture and mining (Gartner, 1985). Since the new company is not in any of these categories, access to credit may be a major barrier for growth and expansion. A strategy to overcome this barrier and to make the company credit credible is to use its existing international bank account that applies for its parent company in Australia or any other viable international destination rather than a new account in Brazil, from which the credit base of the company will be determined by local and financial authorities. Tax and regulatory policies that impede entrepreneurship The tax system in Brazil has been described as one that is yet to be embraced by the business community as entrepreneurship friendly. This is because there are very little tax reforms and tax policies that are directed at relieving enterprises of financial spending. Indeed some of these tax reforms exist in most developing and emerging markets but the one in Brazil is yet to see the shine that entrepreneurs desire. For example in some economies, there are no corporate taxes for new entrant companies who have working capital up to a certain amount of money (Amine& Staub, 2009). However, this is absent in Brazil. In other markets even though new companies may pay taxes, the taxes are diverted into the personal incomes of owners of businesses, making it possible for the companies to expand as widely as they desire without the need to think of tax constraints. This is also absent in Brazil. Presently, Brazil practices a progressive personal tax system, which provides that people pay taxes on their income, going as high up as 27.5% (Amine& Staub, 2009). This tax system has been identified as a potential barrier because it creates huge balance sheet deficits for most companies that enter the emerging market newly and threaten some from undertaking massive expansion, fearing that the expansion would lead to higher progressive taxes. A strategy to overcome this barrier is to ensure that the company always has a low internal budget so that its balance sheet will be robust against this form of external shock coming as a result of unpredictable and higher tax impositions. Conclusion From the discussions so far, it can be concluded that much of the attempts to overcoming the prevailing barriers rest with the entrepreneur in question. This means that there should be an internal mechanism that looks at ways of becoming self sufficient for the prevailing competition. The hope here is that there are records of major oil and gas companies in Brazil that started as mere small and medium scale companies but through diligent in-house strategies, they were able to weather the storm to become larger companies with international reputations (Krasniqi, 2007). The task ahead should therefore not be seen as a lost battle even before it is ventured. As part of the internal mechanism, the cutting down of internally generally cost emanating from aspects of the business such as incentives and honorariums must be cut to their barest minimums. Rather, capital injection approaches that make the company resistant to external economic shocks such as increases in taxes must be embraced. References Amine, L.S. & Staub, K. M. (2009) ‘Women entrepreneurs in sub-Saharan Africa: an institutional theory analysis from a social marketing point of view’, Entrepreneurship & Regional Development, 21 (2), pp.183-211, [Online]. Available from: http://dx.doi.org.ezproxy.liv.ac.uk/10.1080/08985620802182144 (Accessed: 19 September 203). Foley, D. 2003. An examination of indigenous Australian entrepreneurs. Journal of Developmental Entrepreneurship 8: 133–51. Gartner, W.B. 1985. A conceptual framework for describing the phenomenon of new venture creation. Academy of Management Review 10: 696–706. Ivanova, Y.V. (2009) ‘Can this business be rescued?’, Entrepreneurship Theory & Practice, 33 (4), pp.989-995, [Online]. Available from: http://dx.doi.org.ezproxy.liv.ac.uk/10.1111/j.1540-6520.2009.00305_1.x (Accessed: 20 September 2013). Krasniqi, B.A. (2007) ‘Barriers to entrepreneurship and SME growth in transition: the case of Kosova,’ Journal of Developmental Entrepreneurship, 12 (1), pp.71-94, [Online]. Available from: http://sfxhosted.exlibrisgroup.com.ezproxy.liv.ac.uk/lpu?title=Journal+of+Developmental+Entrepreneurship&volume=12&issue=1&spage=71&date=2007 (Accessed: 18 September 2013). Read More